WPI inflation shrinks to 29-month low

New Delhi: India’s wholesale price-based inflation fell to its lowest since October 2020, benefiting from cooling global oil prices, even as food prices surged for the third month in a row.

WPI declined to 1.34% in March from 3.85% in February but economists said food inflation could surge due to the ongoing heat wave conditions. A heat wave in March last year had driven food prices to record levels due to damage to vegetables and wheat crops.

While wheat price inflation eased considerably to 9.16% in March from 18.54% following the open market operation undertaken by the government, price rise in pulses jumped to 3.03% against 2.59% in February, driving the overall food inflation to 5.48% in March compared with 3.81% during the previous month.

Elevated fodder costs and higher demand vis-a-vis production continued to put pressure on milk prices which stayed at elevated levels. However, the price rise declined marginally to 8.48% in March compared to 10.33% in February and 9.85 % in January.

“The downtrend is expected to continue, with the WPI inflation remaining below 1% for the next three months, given the favourable base. Some uptick can be seen in Q2 onwards as the support from favourable base fades but the monthly WPI inflation is still expected to remain below 5% in absence of any major turnaround in global crude oil and commodity prices,” Rajani Sinha, chief economist, Care Ratings said.

Notably, fuel and power basket inflation eased to 8.96% last month from 14.82% in February which was the lowest since February 2021, driven by a drop in international crude prices.

“However, if they begin to strengthen again on account of better than anticipated demand outlook from China, then it could add pressure on our WPI. Continuous increase in the electricity price index in WPI also needs to be watched,” Madan Sabnavis - chief economist, Bank of Baroda warned. Core inflation which captures the change in the costs of goods and services excluding food and energy, deflated for the first time since July 2020 as it fell to (-) 0.3% in March from 2.1% in February.

“The indications are that the WPI inflation will be in the lower range of 2-3% in the coming months,” Sabnavis added.

“Global oil prices are inching up reacting to cuts in oil production by the OPEC+ countries. The possible impact of El Nino on monsoon rains may further add pressure to food prices in the months ahead. Besides, global inflation remains elevated and expected to remain sticky,” said Rumki Majumdar, economist, Deloitte India.

Going forward, Ind-Ra expects the deflationary phase to kick in from April 2023 onwards on the back of a base effect and low commodity prices. The agency expects WPI to come in at around -0.5% in April compared with 15.4% a year ago. Earlier, CPI declined to a 15-month low of 5.66%in March from 6.44% in February.